The house explains that higher ECB interest rates will support net interest margins, while the bond-buying program will help stabilize spreads and prices of government bonds, which make up a significant percentage of the portfolios of some Eurozone banks.
Positive for the creditworthiness of its banks Eurozone is increase in interest rates by 50 basis points from the European Central Bank and the new bond buying program it announced to contain spreads, according to credit rating agency Moody’s.
The house explains that its higher interest rates ECB will support net interest margins, while the bond purchase program will help stabilize spreads and prices of government bonds, which are a significant percentage of the portfolios of some Eurozone banks.
He expects the rate hike to support all Eurozone banks, but will particularly benefit Southern European banks in Italy, Spain and Portugal because they have a higher proportion of floating rate loans than Northern European banks and are more dependent on deposits for their funding.
As higher central bank rates pass through to lending rates faster than deposit rates, the net interest margins of these banks will get a bigger and more immediate boost than those of banks with higher rates of fixed-rate loans and funding from outside sources. of deposits, notes Moody’s.
The new Monetary Policy Transmission Protection (TPI) tool is designed to contain rises in Eurozone government bond yields that are not justified by fundamentals. The tool can help avoid the domino effect that occurred during the Eurozone debt crisis and boost consumer and business confidence during periods of economic or political pressure in individual countries.
Moody’s expects the TPI to benefit, like rate hikes, southern European banks because they have more exposure to their countries’ bonds: Italian banks have 300 billion euros of Italian government bonds and Spain’s 250 billion. euros in Spanish government bonds.
A key strength of the TPI, according to the house, is that it allows the ECB to buy bonds in a potentially unlimited amount, giving it a means to intervene decisively in the event of changes in yields it deems “disorderly”.
Moody’s does not consider the conditions a country must meet in order for a decision to purchase its bonds to be particularly restrictive as the Governing Council of the ECB retains a great deal of discretion in its assessment of eligibility.
The house considers positive the announcement by the ECB that it will proceed with other interest rate increases, if it successfully prevents a destabilization of inflationary expectations that would be harmful to the economies and banks of the EU.
RES-EMP
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